Author

Daniel Bustamante | Coach

Good traders anticipate the future, they don't react to it.

Don't believe me? Go ask any one of your friends who when Bitcoin hit $15,000 suddenly changed their LinkedIn, Instagram and Facebook about me sections to 'Crypot Investor'. Hey, I see it all the time here in Scottsdale; Part time real-estate agent, part-time crypto investor. I barely have time to get my workouts in let alone hold hold a few different skill sets, but that's just me.

Turnaround Tuesday. This is what what student told me a strategy was. That every Tuesday the markets would turn around.

I mean I've heard stranger things, like trading with astrology. Again, these are global markets and you see the best, worst and just flat out straight-jacket crazy things. Waking up here today the markets are trading lower. I was concerned a little about this yesterday with some of the rally we had and seeing some names lag. The one thing I can tell you is trading in ranges is a little harder.

​From 12+ years of doing this here is what I can tell you when you get (what's really called, range expansion) range is to try this:

1. Trade smaller size and go for larger targets2. Scale out of trades; take profit on one contract and keep one to see where it can go3. Expect 'faster' more impulsive moves off price levels

These markets are usually good for some serious size trades but you don't want to overstay your welcome.

The support I care about on Nasdaq is: $6980-$7000, because below there we're going to get ugly.

In other news. Twitter locked Elon Musk's account thinking he was hacked last night. Which reminds me, I know everyone thinks they hate this stock and that it's going bankrupt, but, it has a HUGE short interest. Why does this matter? Because when we get any good news or bids on this stock it tends to have massive 1-2 day rallies. So the key here is to exploit the short-traders pain.

Watch The $263 and $266 levels on Tesla, above that it's good for a move higher.

Author

Daniel Bustamante | Coach

It's still hitting 90 degrees during the day here in Phoenix and it's late October. Like the market trading at these highs, it doesn't make sense, but it is what it is.

This week ahead is key for the markets. The rally we say last week was short-lived and we ended on the lows with Netflix just days after a great earnings. I talked about gold stocks this morning on our new radio show in Dallas.

​I don't think we've seen the end of the selling yet so prepare for more and if you missed out on profits during this slow Summer now is the chance to make it up.

Most of my weekend starting Friday was spent researching the new opportunity zone tax regulation. Meanwhile, Americans were busy spending billions on lottery tickets for this massive jackpot....because, you know, making a few profitable trades a month is too much to ask : ).

Author

I made my first trade when I was 18. It was a Canadian mining stock through a Scottrade account. I made three mistakes that were both using the same rationale:

1. The stock was 'cheap' only $0.10 2. The commissions at Scottrade were the cheapest, at that time. 3. I went all in on one idea.

“That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’” – Paul Tudor Jones

Sometimes cheap is expensive.

Now at the time my capital was limited and my theory was I only needed this stock to double and I would be good to go. But like with many things you simply don't know what you don't know. Back then Twitter, StockTwits and YouTube trading gurus were not around. I sound old saying this and maybe I am.

2009 is when I became a 'Professional' - trading for a firm as a futures trader. It was there where I learned how to properly look at the markets. And of course over the years you pick up a few things but the core concepts will always remain the same. This week speaking to students someone said an option was 'expensive' - which, could be true. But what they meant is that it was $900 a contract and that was expensive.

The lesson here and for all investors is this: It doesn't matter how much it costs what matters is what you can sell it for.

As the markets consolidate after a nice rally this week my plan is to sit back and wait. I think we've got some more selling to do and if NFLX earnings are any sign of what's to come (the selling right after it $400) then we should be in for some great trading into November. By the way, the title of that Barrons article in that link above is a reason why I, and you as well, should never pay attention to an opinion based on feel to invest or place a trade.

I'd rather be lucky than right is usually what people say when they screw up. What happened today was luck. The market gave you a chance to get some of your losses back and to sell where you should have three weeks ago.

Sure, the markets got a hell of a bounce today and I was in a lot of the move. I had Square calls from last Thursday that I sold the rest of in addition to an add today. Even the CNBC talking heads are glowing more than usual, for now. You see the markets and general public are quick to forget. We're in the ADHD age. One minute we're against Kanye West and the next week he's a hero, until he's not.

These are the same with the markets. They're fickle, and this rally was a short-term rally to allow you to get out and take your gains for the year.

You see what you saw last week was institutional liquidation. What that means is, in short-words, is that the banks, funds and larger players needed to reduce their net long market exposure. You see, for the most part, they're not day-trading like the movies will have you believe. They take longer term positions. But the thing is you can't just dump billions of dollars of assets on the market if you don't have willing buyers.

The Russell 2000 was down -10% last week, Square stock was down -35% in 12 days, so we got a rally today and you think that this is normal again? It's not.

Most of the net long positions I took yesterday (Tesla Calls), BABA and Square from last week are all but sold as of today's market close. This market will drop again. And if you know what you're doing more days like this (up or down) are going to be good for some serious gains.

Here is one last item I want to leave you with. Take a look at the gold stocks: GLD, NEM etc. from last week. You see how they rallied like they had a Tesla battery pack in them? You see how they didn't really sell off today in this massive market rally?

Why is that? Because there are new net long positions being established for a 3-12 month move on those stocks happening.

A shift is occurring right in front of us for the next few months and next year. The question is are you ready to adjust your portfolio for it?

Author

Electric powered cars are the way of the future and I'm not so sure I like it.

​This year Tesla stock has been as volatile as a stock can be but there's no escaping how cool the car is.

Now I know Elon Musk catches a lot of heat (especially lately) for some of his antics and whether you agree with it or not he's a visionary in our time. Something came by my desk today regarding Tesla and I wanted to share.

Now the rest of this market is still a little sketchy but how that affects Tesla, well I'm not smart enough to figure it out but I do know that this electric development going on is pretty cool to witness.

Does this affect Tesla's stock? Again, it's hard to say because I'm more of price based trader, however, the theme of electric is something to watch for you longer term investors with time on your hands.

In fact, I'm a huge fan of Formula One and if you've seen as of late the Formula E series is starting to take off with some of the ex F1 drivers moving to that series. Needless to say, the world is moving to electric.

That being said I've been staying out of the markets today aside from some small call positions and a few futures trades. Usually in times like this it's almost best to sit and wait it out which I'm alright with because it can lead to reading into other items like this electric craze we're on.

Author

​It's an interesting idea of thought and something I learned when reading a book on it when I was just a wee lad at 19. The point is, I think that panicking really just is short for "I didn't prepare." And part of being a good investor is preparing. Of course that leads into other aspects of our life but preparing for market corrections, retirement, or the "what if" situations are never a bad thing to do.

My personal investing style is combination of momentum and price action. I'll trade and invest in anything that I can see price heading higher or lower. So when markets sell off it doesn't really bother me. In fact, it has the opposite effect, I get excited. You might think I'm crazy to say that but market sell offs create opportunity for you to go short and then to get back into stocks at better price levels.

Author

Daniel Bustamante | Coach

It's interesting. Lately I've been speaking with a lot of people (mainly real estate folks) that can sense something is on the horizon in terms of a slow down. Not only them but others with large (+$250,000) investment accounts. Those include, IRA's, 401K's etc. that are concerned up at these highs. I want to address a few things in this blog:

1. How to make money betting against the market2. Portfolio philosophy

If you're reading this or if you're like a few people I knew that have had hour long phone calls with me trying to piece it all together then congratulate yourself. You're looking forward and preparing and that's what most should do. Just like you, I do the same, it takes time, running scenarios and ideas to formulate a plan of attack. I don't claim to have some special investing prowess or even to be the best investor (hopefully in 20 years I will look back and do well) but I think I have a good 'traders feel' and basic understanding of how to use the right products to make returns.

How to Make Money in a Bear Market:

So before I start on this, I don't want to say I am calling a market top, I'm not. That's almost impossible to do anymore with algorithmic trading stopping most large sell-offs like we saw in the late 80's and 2000's. What I am saying though is around these highs that it's hard to allocate capital to stocks. And for the record, I said the same thing in 2014 when I was a portfolio manager at a long/short fund in Scottsdale. For Q2 I struggled finding 'long ideas' and I sat in cash for most of it. It was annoying.

However, I am a big believer in keeping it simple. Where the markets are now, it's dangerous to be buying new net long positions. What I mean is if you're reinvesting dividends I would consider stopping. Most financial advisors are going to tell you not to, but consider the conflict of interest in all of this, it's there. But, let's get on to how to make money betting against stocks.

Short Index ETF's

Most retail investors are not saavy to short stocks outright (you can learn, and if you're serious I would suggest it) so ETF's allow you to buy shares of an index and when that index falls, profit. That's the great thing about capital markets; There are many vehicles to express an investment theory, half the battle is finding that vehicle that works. The ones I like are here.

​These usually are the 'easiest' way to bet that the market indices will go down and there are no fees associated with them.

Another one that I like is QID. This will bet against the Nasdaq price falling. I really agree with this as an overall theme.

There are a few more but for sake of keeping it simple in this blog let's just stick to those.

Short Index Futures

Index futures are a great way to short (bet against) the market falling and there are tax benefits. I'll warn you however, most retail traders won't be able to handle using these products mainly because of the leverage involved. But, if you can then they are a great way to also allocate money to betting against the market selling off. Also, you don't need hundreds of thousands to do it either, which is great, and allows you to keep cash on the sidelines (discussed later).

Long Dated Index ETF Put Options

The Index ETF's are a great way to bet that the market is going higher, but, we think we're going lower soon. So, you can use the underlying options on those ETF"s to bet against the market. ETF"s like SPY, QQQ, IWM are my favorites. Those instruments have options chains that have a lot of liquidity which means you can easily execute a $50,000 put options order buying and selling (for the most part).

With this, one could buy long dated (12-24 month) put options. The risk is capped, you don't have to watch it everyday and you can allocate a small percentage of your portfolio to this trade. This gives you market exposure to the short-side at a fraction of the cost.

Short Individual Stocks

This one is a bit more complicated and takes a little more skill. I only mention it here because it's something I would be doing in the event of a market turn, which I believe, we are close too. The issue as I see it is that it get's a little more complicated and the risk here is a bit higher for other reasons. Now finding those stocks to short is a tedious task whereas using the ideas above is pretty simple.

Short Market Cocktail

In a perfect portfolio structure I would look at what I would call a 'Short Market Cocktail' but hopefully one that let's you avoid the morning hangover. This would look something like this:

So what you notice here is there are no 'long stocks' meaning nothing that I would be holding assuming that it is going higher (Short Index ETF's excluded).

Why is that? We're going to get to that in part two below.

Portfolio Philosophy

So we've talked about how to potentially make money when markets sell off so let's discuss some philosophy behind it. Again, everyone has their own and I'm not saying mine is better or worse, but sharing.

Let's start with this current bull-market run we've been on. It's the longest in stock market history. There are opinions as to why that is but looking back is usually a waste of time so let's just all agree that it's good. Making money on the long side (buying) has been, or should have been, relatively easy the last 6-9 years. I say 'easy' because I sold BABA way back when and look where it is now. Which makes the case for the question, well what if we just keep going higher?

Yea. That can happen too. But I want you to consider what I do as a 'trader' (and usually that comes with a bad name - but traders have 'market feel') and look at the overall market. As I look at the Nasdaq, S&P500 and leading FANG stocks I notice a lack of 'thrust' or buying the last two months. Major names like Priceline, GOOGLE and even NetFlix are missing those large 1-2 day rallies. I remember 2009 well and I remember what market turns look like from 12 years of doing this and I can tell you that looking at those items tells me we're in for a turn here soon. How much? Who knows, I won't even pretend to be that smart, but I know a reversal when I see one and we're getting close. (For the record, and this counts for nothing, I mentioned that we were in for a pullback at Financial Fest in Scottsdale in January, then February we had that nasty sell off). I said the same thing as I said above.

To continue on this idea of a market turning. I had a friend of mine in Hong Kong who is a 30 + year analyst whom I share ideas with send me some charts on margin lending.

​

You can click that link to expand it.

If it doesn't make sense, don't worry, it's a little more complicated and it's not something you're going to find the YouTube and Twitter Gurus discussing as they sell you the $29.99 magical indicator.

The article he sent me explains it much better than I can so I am just going to link that here.

So when I say that the markets are at, what I believe, to be a turning point I think you have to look at that and say maybe it's time to 'take some off the table' or even take, say 40% off. Realize the cash/profits. There's nothing wrong with that. And if we're being really transparent here the markets need people to not take money off the table so that the other sides can win and the markets can function as they do.

Second portfolio philosophy now. You don't need to be 100% or even 150% (margin as the chart above shows) invested at all times. I know some hedge funds use special levered funds to enhance returns and I'm not against it, and should I get the chance, will at some point likely use that as a tool as well, just not at the current time. So by that being said I think the art of individual stock selection is an approach many investors can take.

Let me give you an example I gave a friend of mine just today on this. He has about $1.5 million in his portfolio. So I asked how much were you up this year and he goes about $200,000, through the use of mutual funds mostly. So on a percent return basis that's what, 13%. That's good. But, what I explained is that you had to have $1.3 million fully invested at the start of the year to return that.

What I tried to explain was what if you selected 2-4 stocks and used $750,000 in capital allocation on those stocks and kept the other in cash or say maybe a REIT or high paying dividend stock. What if one of those stocks was Square which is up massive this year? What if he had 10% of his portfolio ( I believe in this, diversification is a myth - up to a certain dollar amount that is) or $120,000 allocated to Square? He would be up nearly $90,000 let's say alone from that.

So I say that individual stock selection is key and much better than the lazy approach of just putting money into mutual funds and checking your statements once every 6 months. Now this all may sound simple and easy but finding the right stocks is hard, no question about that however, it can be done.

Now the other cash on the sidelines that's not invested? So what. Let it sit is what I say until an opportunity comes knocking, especially at these all-time market highs.

Conclusion

So I hope this blog, while longer than other ones, brings a little value and insights to your investing. Hopefully it let's you know that all investors 'experienced' or beginner go through the same analysis process and are on the constant quest to find the perfect method to allocate and manage risk in the markets.

Learning to trade or starting a business can be difficult and scary as a beginner. The risks, the time involved and probably most importantly the capital required keep many people out of the game. However, we're going to discuss how you can learn to trade options for income.

When I meet most novice investors or investors with less than $10,000 in capital my suggestion is always options.

It's been a simple approach once learned and it took me about a year of listening to student stories and being a 'fly on the wall' watching other education companies attempt to teach retail traders how to actually make money doing this.

The answer when you start is options. When you start anything new you want to feel a sense of accomplishment and progress. It's like going to the gym, when you see results you keep going and you stay motived. It's the same with trading options for income.

Below I want to share a short video with you to show you a $1,100 call option trade that cost me about $400 to place. In fact, I did it really as an example during a private mentoring session with a student yesterday. ​

The principles we're going to discuss in our Trading Options for Income webinar for beginners are:

1. How to use $500 or less risk per trade2. How to start with less than $10,0003. Steps for trading for income4. Student Case Studies

Trading does not have to be a full time business, nor should it be. For many of you having supplemental income on the side is more than enough and we're going to show you how this can take less than ten hours of your time a week if done following a simple set or processes.

Author

Daniel Bustamante | Options Coach

Is Alibaba Set for New Highs?

People love to hate the stock Alibaba and if we're being honest I used to be one of them. But what I know from twelve plus years in this business is that you can't fall in love or hate any stock. At the end of the day it's just an asset and that asset revolves around the oldest principal in commerce: supply & demand. So the question we ask is if Alibaba is set for new highs? My verdict: Yes.

Now I am not here to convince you to buy this, I'm already long the stock with various options strikes, but, I do want to share why this could be trading to all-time highs in the very near futures.

The price chart.

It's no secret that price action trading and price charts are what many professionals use. Not only for market analysis but for entries and exit signals to assist in a a 'cleaner' exit or entry of the asset. This price chart is ripe on a weekly time frame. What I mean by that is the candle this week opened up 'strong' - which, if you're new to this may seem subjective. Then we look at the all-time high, $211.70 - we tested it last week, failed and now are on our way to test again with a likely breakthrough.

As a trader, I want to (in this case - not all) position myself in this trade before the breakout, which I did.

(click on the chart to expand)

The Call Option Flow.

Call options flow is not usually something I care to look at too much. If a stock is going to rally or sell off the flow is usually there. But in some cases looking at the flow is just an additional piece of information. Now I want to stress this before moving on - The most important thing for me is the price chart. There are simply too many indicators, trading books and ideas of why a stock should or should not move. I've seen checklists for stocks where 25 things have to occur before placing a buy, it's ridiculous. And if I'm being honest, most people that need the 25 checklist are afraid of losing even $100 and in that case you have no business in this business.

That being said. The options flow on this stock the past few days has been highly unusual. But what do I mean by that? Let me use the image below with about a $1 million call 'sweep' of the September $225 calls.

Click to enlarge. Then notice the highlighted yellow items. Those are 'sweeps' meaning it's one order that took the entire available position. That is usually larger trader or maybe even an institution making this move. In fact, this is about a $1 million bet on this stock rising, though, in the world of Wall Street a $1 million bet is relatively 'small', crazy, I know.

That combined with a lot of volume on this weeks options, the weeklies, right off the open on Monday tells you that traders are positioning for a move higher. Now really, this is not why I took the trader or why I think it's going higher but it certainly helps the bullish case. ​So as we sit here after the market, I believe we'll see a move to $220-$230 in relatively short order. I hope this helps in your investing and if you have questions please feel free to reach out.

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